How to challenge a low appraisal (a format to use)

How do you go about challenging a low appraisal? While you might feel frustrated beyond belief, it’s important to not make an emotional argument, but rather share facts and market data in a systematic way to support your case. The following document is a format I developed for my investor clients who kept asking me what they can do to deal with bad appraisals.

Before launching into a rebuttal, you first ought to make sure to ask the lender what their process is for challening an appraisal so you know you are spending your time wisely. Additionally, read through some of my tips for challening a low appraisal.

Check out the document below or VIEW OR DOWNLOAD HERE. Feel free to use or adapt according to your needs. If you need a Word document of this file, contact me.

UPDATE: I wrote a helpful piece on BiggerPockets.com about how to challenge a low appraisal. I included a downloadable format to use that evolves the format above just a bit. It’s free. Go get it HERE.

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Comments

We have been challenging a low appraisal but it came back with no adjustments. An appraisal in April resulted in a value of $345K, but a second appraisal done in August came back at $300K (This is the one we were challenging). The second appraiser used all distress sales even though there was no shortage of like-kind comps that closed as arms length transactions. What is strange is that the appraiser indicated on his report that three of the sales were “arms length” when in fact, they were REOs. We noted this error in the Value Reconsideration request, but he ignored it and made no clarification. He simply came back with no change in the value. We complained to the AMC and only when his hand was forced did he make the corrections on the report and still did not make any adjustments in his opinion of value. Can you give me your perspective on this? Is it acceptable to use all distress sales as comps? Also, is it possible we offended the appraiser and that is why he would not make any adjustments? I will paste what I wrote in the Reconsideration of Value so you can tell me if I could have written it differently.

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Request for Reconsideration of Value

We would like to request a Value Reconsideration of our property because it appears that the sales comps used in the appraisal ?report consisted exclusively of distress sales; all four of the comparable closed sales in the report were either REO sales or ?Short Sales. It is likely that the appraiser was unaware of their “bank-owned” status, as the report indicates “ArmLth Sales” for ?several of the foreclosures?.?

Since distress sales generally do not sell at market value, we are hoping that the appraiser will consider omitting the original comps? from consideration, especially since there is no shortage of like-kind comps available in our area from STANDARD SALES, which ?better represent our property’s market.? ?

In addition, the locations of several of the comps used (including Comps 5 and 6, which are currently active listings) are north of ?Vanowen Blvd and on the other side of the Los Angeles River. Despite their seemingly close proximity, these belong to an entirely ?different tract of homes and are not the best market representations compared to those in our immediate neighborhood. The new ?comps we are submitting are based on standard sales, are all within the same housing tract as our property, (south of Vanowen ?Blvd, north of Victory Blvd) and are on the same side of the Los Angeles River as our property. These comps should result in a ?more accurate valuation of our property. We actually have another recent appraisal report conducted just a few months ago ?(late April 2012) that came back with a market value estimation closer to the sales prices of these comps. ?Lastly, we didn’t notice on the report any mention of our in-ground jacuzzi in the back covered-patio; should this have been ?included? It is easy to miss because the jacuzzi is covered, so it’s possible the appraiser simply did not notice it. Also,since we ?have owned the home, we have put in new copper plumbing throughout the whole house (we even replaced the sewer line going ?from the house to the street), we have installed automatic sprinklers in the front and back yards, and we have replaced the roof ?with composition shingles. Could any of these warrant additional positive adjustments to our market value?? ?Thank you so much for reviewing this. We look forward to your feedback as soon as possible.

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Thanks so much. I would be grateful for any tips you can offer. We are likely going to order another appraisal.

Hi IgotSonshine. I’m sorry to hear of your situation. That is a hefty difference in value between the two appraisals. First off, why are there two appraisals being done on the property? Is this an FHA flip or was the lender suspicious of the value for the first appraisal, so they ordered a second?

I cannot do a review of this appraisal nor comment on why the appraiser responded the way he did. It does look like you’ve done your homework and given some food for thought to the appraiser though. It is not best to use all distressed sales, but are there others available for the appraiser to use? If there are better ones that are more consistent with the market, you may want to share those with the AMC and lender. That’s often helpful if there is indeed a difference in value between traditional sales and distressed sales in your market. Let new suggested sales do your talking for you. It’s important to introduce new data where possible to help illustrate what the market is saying.

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